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Jupiter to launch 4% yield emerging and frontier markets trust

Jupiter is launching a high-income emerging and frontier market equities trust in May
April 20, 2017

Jupiter is launching a new emerging and frontier market equity investment trust with a target yield of 4 per cent amid what it says is a unique chance to buy cheap, unloved dividend stocks from countries such as Kenya and Vietnam.

Jupiter is hoping to raise £200m to launch Jupiter Emerging & Frontier Income Trust, due to be listed on the London Stock Exchange on 15 May 2017. The high-conviction trust will be managed by Jupiter’s global emerging markets head Ross Teverson with assistant fund manager Charles Sunnucks and have an annual management fee of 0.75 per cent. Although it will be benchmarked against the MSCI Emerging Markets, Jupiter says the trust will be unconstrained and invest in a far wider pool of countries and stocks than a typical emerging markets fund. It will also make use of the closed-end structure to invest in frontier markets up to a maximum of 25 per cent.

The launch of Jupiter Emerging & Frontier Income Trust follows a renaissance for emerging and frontier market equities in the 2016 calendar year. Stocks bounced back after being hit by weak commodity prices in 2015. But Jupiter says there remains a raft of small and mid-cap stocks in emerging and frontier markets such which remain undervalued.

Jupiter Emerging & Frontier Trust will have a concentrated portfolio of between 40-45 stocks and the trust will have a higher weighting to small-cap stocks than the house’s emerging market funds. Jupiter says the combination will result in high dividends today and high income in the future too.

The trust will list with an estimated yield of 4 per cent, which easily places it above the current top-yielding trusts in the Association of Investment Companies (AIC) global emerging market equities sector. JPMorgan Global Emerging Markets Income Trust (JEMI) yields 3.87 per cent and BlackRock Frontiers Investment Trust (BRFI), which invests in frontier markets, yields 3.32 per cent according to Trustnet. The MSCI Emerging Market index yields 2.44 per cent.

Jupiter’s income will comes from three groups of income stocks: companies paying out high dividends currently, companies with lower yields but sustainable income growth trajectories and stocks yielding between 0 and 2 per cent expected to pay high income in the future. Around 50 per cent of the portfolio will be invested in stocks with yields of between 2 and 6 per cent, with established track records of paying dividends and around 10 per cent of the portfolio will be invested in low yielding companies with high future income potential.

Although frontier markets are generally perceived as higher-risk investments, Jupiter says it expects the trust to beat the MSCI Emerging Markets and deliver a higher income with a lower volatility of returns, due to to the low correlation between frontier and developed markets.l.

Jupiter has been running a model portfolio in advance of the trust’s launch since 4 May 2015. That portfolio has displayed lower annualised volatility than the MSCI Emerging Markets index as well as maintaining a higher yield. The model portfolio has a substantially higher weighting to Russia and Taiwan than the index, and an underweight to regions including China.

It includes companies like Taiwanese electronics testing solutions company Chroma ATE (2360:TAI), which has a projected dividend yield of 3.9 per cent and is tapped into a growing market for backend semiconductor testing with a payout ratio of more than 60 per cent.

The trust will invest in companies which the managers believe the market has undervalued, which are undergoing change, either at a company level or due to structural change in their wider markets.

John Scott, chairman of Jupiter Emerging & Frontier Income Trust said: "We feel there is a growing appetite for emerging and frontier market exposure, particularly when this can provide investors with an attractive yield, and this has been reflected in recent feedback received by Jupiter."

Performance of relevent funds and trusts (% total return)

 6 month1 year3 year5 year10 year
Jupiter Global Emerging Markets Fund (I Acc)*3.136.251.057.5 
BlackRock Frontiers Investment Trust 14.441.046.4117.5
JP Morgan Global Emerging Markets Income Trust 5.236.826.338.0
MSCI Emerging Markets Index4.631.036.734.998.5
MSCI Frontier Markets Index7.5426.7121.6972

Source: FE Analytics, as at 18.04.17. *Managed by Ross Teverson